It’s time to clamp down on repayment agents

The use of repayment agents – those who claim tax refunds on behalf of taxpayers – is becoming an increasing problem for taxpayers, for HMRC and the tax advice market.

Some taxpayers think they are dealing directly with HMRC when they use a repayment agent to obtain a tax refund.  Others have no idea they are going to be charged a fee, due to the often obscure pricing policies used. And many don’t realise that they might sign over the rights to all refunds, not just the refund they think they are claiming for.

High volume repayments – where repayment agents submit thousands of claims when no repayment is due – not only cost HMRC time and money, but also result in significant delays processing genuine claims. In fact, HMRC is already failing to pay tax refunds within their target time of 15 days in almost a quarter of all cases.

The scale of the problem

To give some indication as to the scale of the problem, HMRC has suspended just eight agents, but this is estimated to have avoided over 400,000 ineligible claims.

The poor behaviour of many repayment agents is a stain on the regulated tax and accountancy sectors who seek to ensure the right amount of tax is paid at the right time, and that consumers are protected.

The situation has prompted the Government to consult on solutions (via a public consultation until 14 September 2022). HMRC has proposed a partial ban on the use of assignments and a new obligation that will require repayment agents to register with HMRC.

AAT believes that the use of assignments by tax repayment agents should not just be restricted, but abolished. Although the limiting of assignments is a step in the right direction, it would be reasonable to go further and ban their use outright, given they were never intended to be used in this way and are causing problems for both taxpayers and HMRC. Agents could instead rely on the perfectly reasonable “nomination” process that more respectable agents already use.

Another vital area of focus in cracking down on repayment agents relates to Anti-Money Laundering (AML) regulation. The current situation – whereby repayment agents are required to be regulated for AML purposes, but are not required to register with HMRC – is an obvious loophole that must be closed. HMRC also admit most repayment agents are not members of a professional body (and are therefore not being supervised for AML either).

Regulating through membership

AAT asks why is it only repayment agents need to be regulated, rather than the wider tax advice market?

AAT has consistently campaigned for all accountants to be accountable for the quality of their services.

A considerably cheaper, more effective and more broadly supported change would be to require anyone providing paid-for tax and accountancy services to be a member of a relevant professional body, as already happens in more than 200 professions across the UK.

This would not only substantially improve the situation with repayment agents, but also with wider tax advice market issues ranging from tax evasion, egregious avoidance and money laundering to inaccurate, poor and misleading advice. This would better protect consumers, save taxpayers money and raise standards and credibility across the sector.

This is a change AAT continues to recommend at every available opportunity.

Phil Hall is AAT's Head of Public Affairs and Public Policy.